Forex Trading: A Risky Business

Red Star Wealth
by Red Star Wealth

Forex trading is legal in the UK and is FCA regulated, but that doesn’t mean it’s free from risk – far from it.

What is Forex Trading?

Forex trading is short for ‘foreign exchange’ trading. It’s the process of trading in currencies, where people buy one currency and sell another with the aim of making a profit. With forex trading, you’re essentially betting on what you think will happen to each currency.

For example, if you think that the US Dollar will increase in value against Pound Sterling, you might buy US Dollars with the Pound, in the hopes that your prediction will prove true. If you’re correct, you can then sell your Dollars back for more Pounds than you originally bought them with.

High Risk

Forex trading is a high risk investment, as currency prices are very volatile and their values shoot up or down rather quickly.

Additionally, with forex trading, you can use something called leverage, wherein investors can borrow a certain amount of money from a broker to trade more than they actually have available themselves. So, you can put down a proportion of the full trade amount and the broker will cover the rest, allowing you to make bigger trades. This means that losses can be greatly magnified.

“While out margin requirements, closeout levels and real-time margin system are designed to limit your trading losses, you do risk incurring losses greater than your account balance, especially during periods of extreme market volatility.” Forex

Forex Scams

Forex scams have become increasingly widespread, with unauthorised forex trading and brokerage firms offering opportunities to trade in foreign exchange, cryptoassets, and other commodities. These unregulated firms often falsely promise high returns and guaranteed profits.

Many people who have fallen victim to forex scams have reported to the FCA that they initially received some returns on their investments with these scam firms. These returns help these scammers solidify their position as legitimate firms, and gives the impression to victims that their trading has been, and will continue to be, a success.

This technique from scammers helps them to encourage victims to invest even more of their money into the scheme, as they are now more trusted to bring profits. At this point, the investor stops receiving returns, their account is suspended, and they are unable to get in contact with the firm.

Oftentimes, we are advised that if something seems too good to be true, it usually is, i.e, if an investment opportunity is offering guaranteed profit, or claims that it will make you rich quickly, it’s probably not a legitimate investment.

This is a good rule of thumb to follow. However, some scammers have become wise to this, and have adapted their techniques, with some making more realistic offers in order to make themselves seem more legitimate.

Therefore, you should also always check firms against the FCA’s warning list of unauthorised firms.

Additionally, you should check that they appear on the financial services register, and that the contact details and website information are the exact same as they appear on this register. The reason you should do this is because of the existence of clone firms.

Clone firms are a technique used by scammers, where they pose as a pre-existing, legitimate, FCA authorised firm. They may use the legitimate firm’s name, firm registration number, and address.

In the last quarter of 2023, the FCA issued 793 alerts about unauthorised firms and individuals, 6% of which were related to clone scams, showing that this is now a widely-used scamming technique.

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